How do you estimate design costs?

When we meet with new potential clients I almost always ask… “So how would you rate the importance of a great customer experience to the success of the venture…? Is it; nice to have?, great to have? or ‘critical to the successful execution of the product?”. The response is almost always; ‘it’s critical’. Quickly however as we discuss costs and time it becomes clear they haven’t planned or invested accordingly. I’ve had startups reveal proudly how much startup investment they’ve received then balk at the expense when we’ve proposed spending 0.5% of that on a design engagement. It’s clear to me especially with startups that there is little knowledge of what size of investment is appropriate.

No two projects are identical and there is an enormous difference between bringing something ‘completely new’ to market and something ‘slightly different’ to the world but in my experience there is so little discussion about what a ‘reasonable’ investment in design should be – that there is value in providing some simple baseline for estimation and planning purposes.

My proposal is…

Design spending should account for 10-18% of the cost of bringing a new product to Market.

‘Design’ here is a Verb not a noun, we are not talking simply about a set of aesthetically pleasing ‘stylistic’ decisions that help differentiate some commodities. We are mostly talking about innovation and problem solving that when done well creates things of enormous and lasting value for your customers and the world. The activities and deliverables run the gamut from qualitative user research, concept generation, persona development, scenario development, information architecture, prototypes, usability evaluation, visual design, branding, layout, model building, behavioral specification documents, UI writing, assets for development, CAD files etc.

For comparison, architect’s designing a residential house use the metric of 8-12% of total construction costs for their fees. For commercial buildings from 5-15% to go from concept to blueprints. You can go well north of that (>20%) if you are building something of great significance, or working with the world’s most highly recognized architectural companies. If Architecture, has reached a level of maturity that fees are pretty well defined as a proportion of total construction, irrespective of the function of the building, why can’t the same argument be made for product design?

Not to diminish the architect’s role but digital product design I believe to be an equal to and sometimes allot more complex than traditional architecture, (hence my bias that it warrants a higher percentage.) I’m not really interested in comparison between disciplines here, just to point out that the timeframes, impact, process and resulting value are similar enough that they can be usefully compared.

If I was an academic I’d probably reject this argument, a simple comparison is probably insufficient evidence to support the numbers I’m proposing. To convince you the skeptic I’d have to provide allot of great case studies about how the masters spent exactly 18% of their total development costs to produce ‘X’ (the widely heralded examples of great design’). Well sadly that ‘total cost’ data is just not available to most of us. (Someone at Harvard Business review should commission this study)

Instead, I have two things to say; the first is just based on experience with dozens and dozens of product cycles, and from what I’ve seen in corporations, this number feels about right. When I asked some of my senior colleagues at Artefact what they felt was the right number some went higher, some a little lower, which brings me to my second point.

What do you think? Please tell me, if you are privy to the data can you add up all the money spent in your recent product cycle on ‘people’ and expenses doing design activities and then give me what it represented as a proportion of the whole expense? Including, launch marketing, development etc. Lets discuss.

I say “people doing design” above because often people who are not designers are doing design work, sometimes its marketing people, sometimes business owners, sometimes engineers, sometime program or product managers and this is ok as long as a designer is working with them collaboratively on those things. Its worth pointing out that not doing ‘design’ is impossible, even if you don’t hire professionals, you may forgo some of the process that results in better design but whatever you ship is ‘designed’ like it or not. Thus its obviously my position that this investment should be spent on people who have been trained in and have demonstrated they are good at ‘design’, people with great empathy, insight, imagination, and curiosity driven to understand and improve everything around them, in short hire professionals not amateurs. The more experience the designer can demonstrate in your specific vertical specialization may also be a good reason to pay a higher percentage of your budget as the results will often result in overall cost savings.

I also believe Design’s value to a new product development to be highest at the beginning of the product cycle. It’s no use spending a large proportion of your budget trying to scale your design activities at the last minute, much better to have that investment be long term and constant from as early on to the finish. Upfront design investment especially for manufacturing is ‘tiny’ prepared to the costs of fixes late in the process; there are also some great stories of design discoveries made early that saved literally millions of dollars for a business.

How much is too much?

Most design activities can scale, there is a minimum amount of time it takes to competently deliver something without compromising quality, and this will largely depend on the talent and experience of the individual designer. The critical question becomes what is the maximum amount of time you can spend on something, and how does this improve the outcome? There’s a great quote from aWired feature on Pixar which is the Toy Story 3 director Lee Unkrich, says something like he could continue to improve the movie forever, and its only commercial pressure that forces him to let go and release. It’s true that design activities can expand to fill any volume of time, but quality does take time.

Great designers work iteratively, constantly revising and revisiting all the details as new information becomes available throughout the process. So the answer to what is the maximum amount of time essentially boils down to the business owner’s patience, interest and passion in doing something truly remarkable for their customers, rather than something that ‘gets the job done’. It’s no coincidence that Steve Jobs is involved in Apple and Pixar his drive for excellence has resulted in a company (apple) renowned for great design and now has the largest technology company market capitalization in the world.

“We’re here to put a dent in the universe. Otherwise why else even be here?” – Steve Jobs.

So why do companies under estimate design spending?, well part of the story it seems is that there’s an culture in the tech community that prizes action over planning, born out in myths like ‘first to market advantage’. Despite the historic dot com bust, and countless ill-considered, ill-planned product releases every year, there is a tendency to believe that the customers are just waiting to pounce on your hastily or poorly designed product. Consider the 250,000+ applications currently available for the I-phone and how many you can remember being any good, or a well designed experience?

We often hear expressions and excuses muttered like, “we can ship it and fix it later”, and “it doesn’t have to be perfect it just needs to work”. These statements are not to be believed, they ignore market realities (e.g.: Apple has a best to market, not first to market) but worse they diminish the importance of focusing your efforts on the consumer of your experience. Compromising the quality of your customer’s product experience is simply the worst place to be frugal, if you can’t execute it perfectly my recommendation is ‘do less’ perfectly, than lots poorly.

The value of the investment in design activities or the return on this investment is a big topic, too big for the scope of this post. There are ways to measure and isolate the impact design has on a product’s commercial success but we’ve actually yet to have a client who asked Artefact for that. At some level design is something you invest in, because the evidence of its commercial efficacy is all around you in commercial success stories across many industries.

Please let me know what you think the design percentages are in your project, or should be, and if you agree or disagree with my assertion above.